Understanding [in my own words] from Q3FY24 Conf. Call:
What’s the main concern? Q3 results hint at upcoming unsustainable growth rate or lower ROA/ROE. Indicators:
- Elevated LDR [Loan Deposit Ratio]: Deposits [expected retail collections were 50~80% higher] are not outpacing the loan dispersal | Mgmt.: Lack of liquidity in the system after 3.5 Yrs. RBI driven to contain the inflation without increasing interest rates | Wholesale funds as source of deposit were passed due to low profitability - high competition among banks on the basis of rates.
- Bottomed out LCR [Liquidity Coverage Ratio]: Investments and cash on the asset side funded more than 50% of this quarter loan dispersal. Not a sustainable approach. Either
- Loan dispersal be slowed [lower growth], or
- Funds shall be sourced at a higher rate [lower NIM/ROA/ROE…Mgmt.: Not tethered to a particular number in a point of time. However, aspire to maintain past growth rates (double the Balance Sheet size) over a period of time (4~5 Yrs.)], or
- Retail deposits must increase
- Needs more branches [Mgmt.: Might do 800~1000 by year end instead of 1500, which was the earlier forecast | Future pace of addition depends upon regulatory mix (rural vs. urban) fulfillment instead of any hard number]
- Offer higher rates as the driver [Mgmt.: Not a preferred path]
- CASA growth [Mgmt.: Needs to inch upwards with time]
- Higher amount of non-recurrent earnings: Tax writeback, RBL share sale etc.
To decide further course of action, each investor shall ponder upon:
- Is this a temporary phase compared to one’s investment horizon?
- What levers bank has to come out of this situation? [Retail mix [Unsecured in particular], CASA improvement, higher mortgage share, cross-selling of products etc.]
- What’s the alternative opportunity?
Subscribe To Our Free Newsletter |